National Press FoundationWashington, DC

June 13, 2016

New Social Security Rules: How to Maximize Benefits Now

Mary Beth Franklin, CFPContributing EditorInvestment News

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Time is Running Out

Two key Social Security claiming strategies are disappearing. One is already gone. But one “magic strategy” remains.

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Gone but not forgotten

Clients who requested to file and suspend by April 29, 2016

are grandfathered

under old rules.

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R.I.P.File and Suspend

2000 – 2016

File and SuspendOld vs New Rules

• Filed by April 29, 2016

--Trigger benefits for a spouse or child

--Retains lump sum payout option

--Own benefit grows by 8% per year between 66 and 70

• Starting April 30, 2016

--No one can collect benefits during the suspension--Lump sum payout option disappears--Own benefit grows by 8% per year between 66 and 70

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Why 66 is still the “Magic Age”

--Collect your full retirement benefit.

--Restrict your claim to spousal benefits if eligible.

--Avoid losing benefits to earnings cap restrictions.

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Who can claim spousal benefits?

• Your spouse must be collecting Social Security benefits or must have filed and suspended benefits by the April 29, 2016 deadline.

• You and your ex-spouse is at least 62 years and eligible for benefits.

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Separate Rules for Spousal Benefits

• Among married couples, only one spouse can claim spousal benefits.

• In divorced couples, each ex-spouse can each file a restricted claim to receive only spousal benefits.

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But the days are numberedYou must be born by Jan. 1, 1954 to claim only spousal benefits at 66.

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Clients born after Jan. 1, 1954, lose access to all creative claiming strategies

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Social Security will remain a key piece of retirement income

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Review of Basic Rules:Your Age Matters

• You can collect Social Security retirement benefits as early as 62, but they will be permanently reduced by 25% or more for the rest of your life.

• If you wait until your full retirement age (FRA), currently 66, you can collect your full retirement benefit even if you continue to work.

• But if you delay collecting benefits beyond your normal retirement age, you can increase the amount by 8% per year up to age 70—a 32% increase.

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Your FRA May be Higher

Birth Year Full Retirement Age Benefit Reduction at 62

1943 – 1954 66 25.00%1955 66 and 2 months 25.83%1956 66 and 4 months 26.67%1957 66 and 6 months 27.50%1958 66 and 8 months 28.33%1959 66 and 10 months 29.17%1960 and later 67 30.00%

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Increasing the FRA to 67 increases the reduction for claiming early at 62 to 30% and reduces the amount of maximum delayed retirement credits at age 70 to 24%.

The Value of Waiting

• For every year you postpone collecting Social Security beyond your full retirement age (FRA), your benefits increase by 8% per year up to age 70, boosting payments by up to 32% above your FRA amount.

• If your FRA amount is $2,000 at age 66, it would be worth $2,642 per month at 70, plus any annual cost-of-living adjustments in the intervening years.

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Boost Benefits by 76%

• The difference between collecting reduced benefits at 62 (75% of FRA) vs at 70 (132% of FRA) is a 76%

increase in lifetime benefits.

• A larger base amount will result in larger cost-of-living adjustments each year. A maximum retirement benefit translates into a bigger survivor benefit for the remaining spouse.

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Earnings Cap

If you collect Social Security benefits before FRA and continue to work, you will lose $1 in benefits for every $2 earned over $15,720 in 2016. Higher limits apply in the year you turn 66 and disappear after your 66th birthday.

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Lesson #1

If you plan to keep working, in most cases it makes no sense to claim reduced retirement benefits early before FRA.

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Reasons to SS Claim Early:

• If you are in poor health and are unlikely to reach normal life expectancy.

• If you really need the money.

• If you earn less than the annual earnings cap.

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Married Couples should coordinate their

benefits.

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Strategies for Married Couples

• In most cases, it makes sense for the higher-earning spouse to delay benefits as long as possible, up to age 70, to lock in the maximum retirement benefit as well as the largest survivor benefit should he die first.

• The lower earning spouse may want to claim reduced benefits early at 62, assuming she or he is no longer working, or a FRA if still working. It increases household cash flow while the other spouse delays benefits up until age 70.

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How Spousal Benefits are Reduced if claimed before full retirement age

Age of claim % if FRA is 66 % if FRA is 6762 35% 32.5%63 37.5% 35%64 41.7% 37.5%65 45.8% 41.7%66 50% 45.8%67 -- 50%

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Benefits for same-sex couples

Same-sex married couples are now entitled to Social Security spousal benefits after one year and survivor benefits after nine months just like other married couples.

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Don’t Waste This Strategy

• Eligible clients should consider claiming only spousal benefits if one spouse was born on or before Jan. 1, 1954—even if it means altering plans. Example:

• Husband (64) DOB 3-24-1952, PIA $2,694– Too young to file and suspend; old enough to claim spousal.

• Wife (61) DOB 12-15-1954, PIA $2,598– Too young for either strategy.

New plan: wife claims at 66, husband claims spousal at 68.

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Calculating the Real Spousal Benefit

• Husband’s PIA at 66 $2,400

• ½ of husband’s PIA ($2,400 x 50% ) = $1,200

• Wife’s PIA on own work record = $ 800

• Spousal benefit = difference between• ½ of his PIA ($1,200) and her PIA ($800) $ 400

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Spousal Benefits “Top Off”Retirement Benefits

Wife claims her retirement benefit early at 62. She receives $600 per month ($800 x 75% = $600).

When husband claims his retirement benefit, wife steps up to a larger amount

Her reduced retirement benefit of $ 600is added to her spousal benefit differential + $ 400

to create her new combined benefit amount = $1,000

Her new benefit amount of $1,000 per month is less than the full spousal benefit of $1,200 per month because she collected before her FRA. She is still entitled to full survivor benefits.

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Who Collects Delayed Retirement Credits?

• The 8%-per-year increase in benefits between ages 66 and 70 applies only to the worker’s retirement benefit. It does not apply to a spousal benefit.

• So why delay collecting Social Security if a spouse doesn’t earn delayed retirement credits?

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Maximize Survivor Benefits

Survivor benefits = 100% of worker’s benefit including any delayed retirement credits if surviving spouse is at least 66; less if collected earlier. The goal of most married couples should be to maximize the survivor benefit.

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Survivors Can Switch Benefits*

• Widows and widowers can collect survivor benefits as early as age 60, but are subject to benefit reductions and the earnings cap if they continue to work.

• They can collect survivor benefits—equal to 100% of the deceased spouse’s benefit initially—and then switch to their own benefit that continues to grow at 8% per year until age 70.

*These rules DO NOT change under the new law

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How Much are Survivor Benefits?

Start Age % of Deceased Worker’s Benefit

60 71.561 76.362 81.063 85.8

64 90.565 95.366 100.0

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SinglesBenefits based on age at time of claim. No more “file and suspend” strategy. May not be worth waiting until age 70.

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Benefits for Divorced Spouses

• If married at least 10 years and currently unmarried, you may be able to collect on your ex-spouse’s work record as early as age 62.

• If you have been divorced at least two years, you can collect benefits on your ex even if he or she has not yet claimed as long as you both are at least 62.

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Better Strategy for Ex-Spouses

Wait until normal retirement age of 66*andfile a restricted claim for spousal benefits only. Defer collecting your own retirement benefit until it’s worth the maximum amount at age 70 and then switch.

*Must be born by January 1, 1954

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Survivor Benefits for Ex-Spouses

• As long as you were married at least 10 years, you can collect survivor benefits on your ex-spouse—worth up to 100% of the deceased worker’s benefit—even if your ex-remarried.

• Although you lose the right to collect spousal benefits on a living ex if your remarry, you CAN collect survivor benefits on a deceased ex if you wait until 60 or later to remarry.

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Do-over strategyIf you change your mind within 12 months of first claiming retirement benefits, you can repay the money you have already received and restart your benefits at a higher rate later.

Or, if you wait until 66, you cansuspend your benefits—but notrepay them—and earn 8%-per-yearUp to age 70. You can still do thisunder the new law—the only usefor file and suspend under the new rules.

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• If you receive a pension from work in a public sector, including some school teachers, where you did not pay FICA taxes, your Social Security benefits may be reduced or eliminated.

• The Windfall Elimination Provision (WEP) can reduce a worker’s retirement benefit by up to half of his or her pension, but not more than $428 per month in 2016.

• The Government Pension Offset (GPO) rule reduces spousal and survivor benefits by two-thirds of the amount of the non-covered pension with no maximum limit.

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Public Employees:You must pay to play

States affected by WEP/GPO

• Public employees in 12 states, including school teaches in some jurisdictions, do not pay FICA taxes:

• Alaska Maine• California Massachusetts• Colorado Missouri• Connecticut Nevada• Illinois Ohio• Louisiana Texas

• Plus, public employees of some local governments in Georgia, Kentucky and Rhode Island do not pay FICA taxes.

• Federal workers covered under the old Civil Service Retirement System are also affected by WEP/GPO reductions unless they have at 30 years of “substantial earnings” under Social Security.

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SS Benefits are Taxable

Filing Status Combined Income Taxable up toSingle < $25,000 0%Single $25,000 - $34,000 50%Single > $34,000 85%

Married & Joint <$32,000 0%Married & Joint $32,000 - $44,000 50%Married & Joint > $44,000 85%

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Combined income = Adjusted Gross Income plus tax-free interest plus half of Social Security benefits.

New Rules, New Plan

• Married couples: coordinate claiming and maximize larger benefit.

• Divorced spouses: benefit based on the higher of your own earnings or as a spouse; eligible for survivor benefit.

• Singles: Don’t collect until FRA if still working; but may not be worth delaying until 70.

• Families with minor children: Children receive benefits only if parent is collecting; perhaps claim early and suspend at 66.

• Survivors: Can still claim retirement first and survivor benefits later, or vice versa, to maximize benefits.

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Case Study #1Married Couple

• Husband filed and suspended before April 29, 2016.

• Wife turns 64 in May 2016.

• Can wife claim only spousal benefits? When?

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Case Study #2Married Couple

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• Married couple, both age 60

• Husband’s benefit is high earner

• Wife does not have own SS benefit.

• What are their options?

Case Study #3Widow

• Husband died 2002 at age 50

• Widow turned 62 in December 2014

• Widow is eligible for both survivor and retirement benefits. Plans to retire this year.

• What are her options?

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Case Study #4Parent/Minor Children

• Husband/father, 62, retired

• Twin sons, age 14

• What are his options now and later?

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Case Study #5Divorced Spouses

• Divorced ex-wife, 67, still working• Divorced ex-husband, 70, collecting SS benefits• What are wife’s options?

• Assume same facts but ex-wife is 60. What are her options?

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For more information:www.InvestmentNews.com/MBFebook

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